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Most corporate-executive suites are packed with all manner of state-of-the-art technology. But one low-tech instrument is in demand in nearly all of them: a periscope. Not a literal one, perhaps, but CEOs would no doubt welcome the ability to see around corners and spot the approaching forces that could disrupt their businesses or give them an innovation advantage over their peers. In this report, The Boston Consulting Group takes a close look at tools already in use at some of the corporate world’s innovation leaders to identify and explore new pathways to growth, including business incubators and accelerators, corporate venture investing, and strategic partnerships. Drawing on our extensive experience in the field, we offer insights into their most effective applications and describe how they can best be used in concert for maximum strategic advantage.

Innovation is high on most CEOs’ agendas—some 77 percent of those we surveyed in 2013 said it was their top strategic priority or one of their top three priorities. (See “Looking Back at Lessons from Leaders: The Most Innovative Companies 2013.”) Corporate leaders are urgently concerned about innovation for one simple reason: growth through innovation is the surest, straightest route to superior performance. In the Americas, for example, innovative companies generate three-year total shareholder return premiums of 6.7 percent over their industry peers; the ten-year premium is 2.9 percent. The spread is even wider in Asia, where innovators enjoy a 14 percent three-year premium and a 6.9 percent ten-year premium over their peers. (See Exhibit 1.)

LOOKING BACK AT "LESSONS FROM LEADERS: THE MOST INNOVATIVE COMPANIES 2013"

The aim of BCG’s report Lessons from Leaders: The Most Innovative Companies 2013 was straightforward: to identify and analyze what gives successful innovators their edge in performance, growth, and shareholder returns. After extensive analysis and interviews with the leaders of innovative companies, we identified five key success factors that differentiate the most innovative organizations from the rest of the pack:

The Commitment of Senior Management. The report cites examples of CEOs and other corporate leaders who spearheaded their companies’ innovation efforts, instituting “fundamental changes in corporate culture, systems, and practices” in order to promote innovation throughout the organization.

The Ability to Leverage Intellectual Property (IP). The most innovative companies do more than defend their most valuable ideas. They use their IP to establish competitive advantage, regularly culling their patent portfolios, structuring their organizations in order to incorporate IP considerations at every step of the product development process, and generating incremental revenues by selling and licensing IP.

Strong Management of the IP Portfolio. The most consistent innovators actively manage their mix of incremental and “new to the world” innovations and have in place rigorous processes for identifying and promoting high-
potential projects—and for halting them if and when their promise fades.

A Customer Focus. The most highly regarded innovators recognize that innovation does not occur in a vacuum. They constantly interact with their customers. This helps ensure demand for their products at the time of market entry, deepens their relationship with their customers, and prevents them from overspecifying or overengineering products beyond what customers need or are willing to pay.

Well-Defined and Well-Governed Processes. The most consistently successful innovators have strong processes for reviewing projects in development and ensuring their timely completion. They use transparent criteria as the basis for decisions; draw clear distinctions among governance, portfolio management, and project management; and recognize the importance of being effective along all three dimensions.

Not every company that embodies the five attributes just described will enjoy a long run as a leading innovator. But such organizations are the ones that are most likely to ingrain innovation as part of their corporate makeup. There is no surer formula for lasting advantage, sustained growth, and corporate longevity.

Those premiums reflect the centrality of innovation in today’s environment. In search of game-changing new ideas, many companies are broadening their quest for growth-driving innovation beyond their internal R&D efforts and M&A activities. These additional activities and tools can yield sizable strategic and financial benefits and expose companies to a wider range of new ideas than they could generate internally.